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Ongoing geopolitical uncertainties and trade issues have continued to dampen investor enthusiasm, resulting in the number of IPOs in the first nine months of 2018 (YTD 2018) falling to 1,000 globally, an 18% decrease from YTD 2017.

Activity in Q3 2018 was 22% lower in deal volume and 9% higher by proceeds compared to Q3 2017.

The third quarter has lived up to expectations as the quietest period of the year with the global IPO market feeling the full force of geopolitical tensions, trade issues between the US, EU and China and the looming exit of the UK from the European Union. However, the rising phenomenon of IPOs by unicorn companies is shaping up to drive the global IPO agenda through the second half of 2018.

Americas IPO momentum is building

Americas IPO activity remained strong in YTD2018, with deal proceeds increasing 41% to US$50.1b and deal numbers rising by 27% to 195 IPOs.

IPOs in the US posted average first-day returns of approximately 15% and the average current share price post-IPO was up by 28%. Cross-border deals accounted for 31% (18 IPOs) of the Q3 2018 deals in the Americas, signalling increased confidence in Americas exchanges.

The NYSE and NASDAQ ranked among the top three exchanges by proceeds globally in YTD 2018 while Mexico's Mexican Stock Exchange saw proceeds increase by 70% to US$2.9b in YTD 2018 compared to YTD 2017.

The rising phenomenon of IPOs by unicorn companies is shaping up to drive the global IPO agenda through the second half of 2018.

“Americas IPO activity remains strong, with both deal volume and proceeds increasing year-to-date. Investor confidence remains solid in the US, with momentum largely the result of post-IPO price performance, which keeps investors engaged and draws more issuers to the market. As we prepare for November's mid-term elections and the prolific discussions around tax reform 2.0 continue, we may see a tempered US market as we wrap up 2018. However, the steady stream of PE- and VC-backed IPOs in recent months could indicate an influx of unicorn companies coming to market as we head into 2019.”

Asia-Pacific benefits from Hong Kong mega deals

In Asia-Pacific, Hong Kong was the leading story despite cooling activity in the region. Hong Kong’s IPO market experienced sharp spikes in Q3 2018 by both deal number and proceeds, with 18% of IPOs and 49% of global proceeds in Q3 2018. Three mega IPOs (of which two were unicorns) set a record for monthly IPO listings in July, making it this quarter’s most active stock exchange globally. Hong Kong was also the world’s second most popular destination for cross-border IPOs, behind only the US.

Japan continued to perform well in Q3 2018, posting 28 IPOs which is a marked increase from the 17 IPOs seen in Q3 2017. Year-to-date, Japan IPO volumes and proceeds were up 14% and 36% over the same time period in 2017.

Overall in Asia-Pacific, investor appetite for IPOs was sustained, with YTD 2018 proceeds up 16% on YTD 2017 despite IPO volumes falling 31%. Five of the ten most active exchanges by deal numbers and by proceeds in YTD 2018 were from the Asia-Pacific region.

Ringo Choi, EY Asia-Pacific IPO Leader, says:

"In a normally quiet quarter, Asia-Pacific experienced some exciting IPO activity and we saw the positive impact of new listing regulations on the Hong Kong IPO market. However IPO activity was also negatively impacted by interest rate hikes and investors looking for interest rate-driven investments, a trend which could continue in 2019. With the launch of a handful of unicorn IPOs on Asia-Pacific exchanges in Q3 2018, we have seen unicorn companies graduate from a state of infancy to one of maturity. As some companies choose to accelerate their IPO timeline to take advantage of current valuations we are likely to see unicorn and mega IPOs pushing 2018 IPO proceeds above 2017’s levels."

In a normally quiet quarter, Asia-Pacific experienced some exciting IPO activity and we saw the positive impact of new listing regulations on the Hong Kong IPO market.

Ringo Choi

EY Asia-Pacific IPO Leader

Guide to Going Public

EMEIA activity cools amid listing delays and geopolitical change

In EMEIA, deal volumes and proceeds were down substantially from Q3 2017. EMEIA’s Q3 2018 IPO activity was 48% and 85% lower, respectively than Q3 2017 in terms of number of deals and proceeds. EMEIA 2018 YTD activity was also down, with deal volume and proceeds falling 11% and 24% respectively on 2017 YTD. However, the region ranks as the second largest and sustainable global IPO market representing an increased share of 33%.

Average first-day returns for EMEIA main market IPOs was around 12%, while current performance post-IPO increased by 25% on average, signalling that investors remain confident in the IPOs that do make it to market.

Despite a quiet quarter, EMEIA continued to account for three of the top 10 exchanges globally by volume (India, Italy and the UK) in Q3 2018 and two exchanges by proceeds (India and the UK).

While continued political stability and a positive economic outlook have increased IPO activity in India, the performance during Q3 2018 was not sustained and Indian IPOs have seen a steep fall in share prices post-IPO over the last two months.

While the EMEIA IPO market felt the force of geopolitical tensions, trade issues between the US, EU and China, and the looming exit of the UK from the EU, it was a surprise to see no large deals from any continental Europe stock exchanges in Q3 2018. Yet, while IPO activity may have be lower than this time last year, investor appetite stood strong as first-day pops and post-IPO performance exceeded expectations.

Summary

The third quarter was, as expected, the quietest period for IPOs this year so far, but an increase in unicorn IPOs pushed IPO proceeds 9% above YTD 2017.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

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